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June 27, 2019

When hospitals garnish patients' wages, the payoffs may be surprisingly small

Daily Briefing

    In Virginia, more than one-third of hospitals sued patients and garnished their wages for outstanding debt in 2017—a controversial practice that ultimately drives little revenue for hospitals, according to a study published Tuesday in JAMA.

    Study details

    For the study, the researchers looked at 2017 Virginia court records pertaining to completed "warrant in debt" lawsuits, which refers to cases where one party sues an individual for an unpaid debt. The researchers selected Virginia because of its consolidated online court records and its diversity in income, political party constituents, and metropolitan and rural areas.

    The researchers looked at hospital characteristics and assessed how those characteristics related to hospital wage garnishments each year.

    What garnished wages mean for hospital revenue

    Overall, the researchers found that 48 out of 135 hospitals in Virginia, or 36%, garnished patients' wages.

    The researchers found that nonprofit hospitals were more likely to garnish patients' wages than for-profit hospitals. Just five hospitals—four of which were nonprofit and one was for-profit—were responsible for more than half of garnishment cases.

    Overall, the money collected from garnishments made up a small share of hospital revenue, the researchers found. On average, hospitals that garnished wages had annual gross revenue of $806 million, and garnishments accounted for $722,342—or 0.1% of gross revenue.

    On average, hospitals garnished $2,783.15 per patient, though garnishment amounts ranged from $24.80 to $25,000.

    A patient's perspective

    While the collections from wage garnishments make up a tiny fraction of hospital revenue, they can have an outsized effect on patients, consumer advocates say.

    Jenifer Bosco, staff attorney at the National Consumer Law Center, said IRS requires hospitals to operate financial assistance programs and bars hospitals from taking "extraordinary collection actions" to collect unpaid bills without trying first to check patients' financial assistance eligibility. Bosco argued, however, that these rules are too ambiguous, and that nonprofit hospitals have "a lot of free rein to make up their own policy of what they think is appropriate."

    Further, even in cases where hospitals legally can sue their patients for unpaid medical bills, "[t]he question is whether that's something that they should be doing," Bosco said.

    Daisha Smith, a 24-year-old who works a group home for the elderly, is one of those patients whose wages were garnished for an unpaid bill. Smith went to Mary Washington Hospital in 2017 while she was working at Walmart for $11 an hour and uninsured.

    She was unaware the hospital had sued her for $12,287.68 and obtained a default judgment against her.

    "When I looked at my pay stub, I'm like, 'Why do I only have like $600-something in my account?'" Smith recalled. She then saw the word "garnish" on the bottom of her pay stub. "So I called my company and asked them, 'Who's garnishing my check?'"

    Smith said she hadn't known about the hospital's financial assistance program and that no one had talked to her about the bill.

    Smith is no longer eligible to contest the bill, but with the help of a volunteer advocate, she's trying to get the garnishment removed or lowered.

    The hospital perspective

    For its part, Mary Washington says it makes every effort to connect with patients before it initiates legal action. Lisa Henry, communications director for the health care system, said the hospital has a months-long process of trying to reach patients before it moves to legal action.

    Henry also noted that in some cases, the possibility of a lawsuit helps get patients attention about an unpaid bill. "There are many cases resolved before litigation," Henry. "The court summons alone is enough to open that door of communication so that we can work with them." Fewer than 1% of the patients Mary Washington sees are ultimately handled via litigation, Henry noted.

    Further, Henry pointed out that hospitals that sue patients face more scrutiny than hospitals that send patients' bills to collections. "I don't think we're alone—all hospitals are struggling with, 'How do we collect appropriately from our patients to stay open as a safety net hospital?'" (Simmons-Duffin, "Shots," NPR, 6/25; Armour, Wall Street Journal, 6/25; Bruhn et al., JAMA, 6/25).

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